While the rest of us are being threatened with fines if we don’t value our homes correctly for inheritance tax (IHT) purposes, the taxman is letting the other half live off the fat of the land.

In a landmark court case, Brander v HM Revenue & Customs (HMRC), the owner of a large Scottish estate won the right to have it treated entirely as a “trading business” that qualifies for Business Property Relief, and thus enjoys 100 per cent relief from IHT.

Until now, HMRC had insisted that landed estates were taxed not as a whole, but in their constituent parts.  This meant that only the trading elements of the estate - such as forestry, farming or commercial shoots - would qualify for business property relief, while the investment elements, such as property, would not.

However, the recent Brander decision is the first time that the courts have accepted that a Scottish laird runs a “mixed business”, and granted 100 per cent business relief on both the trading and investment elements.

At this stage, it is not known whether HMRC will appeal on technical grounds.  But law firm Boodle Hatfield says that, even if the taxpayer were to lose, it is unlikely that the scope for claiming relief for a mixed business will be lost - unless the legislation is changed.

It’s alright for some. Meanwhile, those of us whose Scottish estates run to a small holiday flat will now have to get three estate agents to value it - to ensure we pay the maximum IHT on death. If we get it slightly wrong, we will bequeath to our beneficiaries a fine of 30 per cent of the additional tax liability, on top of the additional tax due. Grounds for a grouse? I think so.

Related links

Q&A: How to minimise your IHT bill, (Personal Finance, ft.com, Nov 6 2009) Danny Cox at Hargreaves Lansdown and Peter Nillist from law firm Clarke Willmott, will answer readers’ questions on how to write a will and minimise your iht bill on Thursday at 3pm November 12th. Post a question now

November 9, 2009 10:37am in Tax | Comment